What is a Stock Exchange?
A Stock Exchange is a market where large and small investors can buy and sell securities (shares, bonds etc). It is an organized market where buyers and sellers of securities meet as dealers/brokers represent them and acquire or sell securities. It is a market in which securities are traded by members of the Exchange who may act as both Agents (Brokers) and as Principals (Dealers).
The USE is one such market, which has recently been set up in Uganda. It was established in 1998 as a result of a Government policy of transforming the economy of the country from a public sector to the private sector basis.
The Exchange was incorporated in June 1997 as a company limited by guarantee without a share capital. It became operational in January 1998. The USE is therefore a non-profit making body created to facilitate the Government implementation of the reforms and in the future to encourage wider share ownership of the privatized and all the companies in Uganda.
What is a Primary market?
This is where new issues of securities are offered to the public
What is a Secondary market?
This is where already existing securities are bought and sold on the exchange through licensed stockbrokers.
These are financial documents in the form of debt (bonds) or equity (shares) by which the claims of holders are secured.
Is a borrowing arrangement in which the borrower issues (sells) an IOU to the investor promising to pay an agreed upon amount at a given time.
Is a unit of ownership of a company.
Treasury bills are short-term, highly liquid financial instruments issued regularly by governments. In Uganda there are 91-day, 182-day, 271-day and 365-day treasury bills.
"Price" means the unit price of a security.
"Offer" means an order to sell a security posted on the Trading Board
"Bid" is an order to buy a security posted on the Trading Board.
"Spread" means the step by step increase or decrease in price by which bids and offers may be raised or lowered.
This is when a company goes public by issuing its shares to the general public i.e. selling part ownership to the public
"Listed company" means a company whose securities are listed at the USE
"Listed Security" means a security which has been admitted to the listing at the USE
"Dealer" or "Stock broking Firm" means a listed company constituted for the purpose of undertaking on his behalf as well as on behalf of the clients all transactions for which he is responsible in the course of exercising his functions as a stockbroker.
"All or nothing" means that the bidder or offeror is only interested in buying or selling the total number of shares displayed on the Trading Board and does not wish the order to be reduced in size.
"Books close date" means the day on which the register of a company is closed.
"Buyer's Market" is a market which in an initial call in a particular security the aggregate nominal amount of bids exceeds the aggregate nominal amount of offers.
"Cum" placed immediately before a distribution or benefit implies inclusion of the distribution or benefit implies inclusion of the distribution or benefit.
"Coupon" means the amount of interest, which a bond pays, on its nominal value.
"Dividend" means the proportion of profits, which is paid out to shareholders in a company, often paid in two installments as interim and final dividend.
"Dividend cover" means the number of times a company could pay its annual dividend from its earnings.
"Ex" similarly means that the bargain was dealt exclusive of distribution or benefit.
"Match" is where two calls, one bid and one offer have been either wholly or partially satisfied or declared as trades in accordance with the Matching Procedures contained in the USE Rules.
"PE ratio" means Price - Earnings ratio, a relative measure of how cheap or dear a company's shares are.
"Profit and Loss Account" means a statement indicating the results of the operations over a period of time, usually one year.
"Seller's Market" is a market where in the initial call in a particular security the aggregate nominal amount of offers exceeds the aggregate nominal amount of bids.
"Trading Board" means the facility/computers screen provided for matching offers and bids on the market.
"Annual General Meeting"
An annual general meeting is a meeting which must be held by all public companies, which sell shares on the securities exchange. Here, a report on the company's performance is made to shareholders and shareholders are given the right to vote on major policy decisions concerning the company.
Is a document that gives the financial and management details of a company i.e. the financial history and future plans of the company.
Why is the Securities Exchange so important For Uganda?
With the growing competition and the quest for company growth and expansion, companies cannot succeed single-handedly. There is need to access alternative sources of investment capital from a wide base of investment sources. USE represents a vital link between companies with capital needs and the public with savings to invest. Investors will become part owners of the companies they invest in. In return, companies will raise capital from selling shares enabling them to expand their services, replace equipment and develop new products. This will create more employment; incomes and the overall economy will be in position to grow.
What are the benefits of investing in shares?
- Income in form of dividend
When you buy shares of a company you become a part owner of that company and therefore will be entitled to get a share of the profits of the company which come in form of dividends.
- Capital Gains
This refers to the increase in the value of your investment in share
What is a Share?
A share is a single unit of ownership in a company. When an individual buys shares, he or she buys a stake in a company. One of the reasons and this being the main reason as to why companies sell ownership of their companies in the form of shares is the need to raise capital.
How to become a shareholder:
Visit one of our licensed stock brokerage firms and open a Security Central Depositary (SCD) Account. To open an SCD account, you need a valid ID and 3 passport photos.Please note that account opening is free and there are no monthly or annual charges.
How do you buy Shares?
As an investor wishing to buy shares through the USE, you must approach your stock broker and express your desire to buy shares of a given listed company.
Your Stock broker will provide you with details of the trust account specifically opened by the stock brokers to keep investor’s money intended for USE transactions
You will then deposit the money of any amount into the trust account. It is a requirement of the USE that for local orders, payment is made upfront by the investor.
Your stock broker will then post the order (bid) on the Automated Trading System (ATS) during trading hours.
When the bid matches an offer (an order to sell) by either the same stock broker or other stock brokers, then the transaction is considered to have been concluded.
Your Stock broker will then credit the shares to your SCD account.
How about selling of Shares?
As an investor wishing to sell his shares through the USE, you must approach your stock broker and express your desire to sell your shares of a given listed company.
Your Stock broker will assist you to complete a Sell Order form
Your stock broker will then post the sell order on the ATS
When the offer is matched with a bid, the transaction is considered to have been concluded, and the shares will have been sold.
Your stock broker will then debit the shares from your SCD account.
Money is then wired to your bank account by your Stock broker.
Types of Orders
An investor may instruct his/her stock broker to process several types of orders.
Limit order which has a specified price when it is posted for execution
Market order which does not have a specific price when posted for execution. This type of order must be executed promptly at the best price obtainable and will have priority over limit order at the same price levels .It assumes an initial price limit value normally based on the price most advantageous in the market. A market order trades through a range of prices starting at the best price in the market.
How do you benefit from owning shares?
Ownership: An investment in a share gives you part ownership of the company.
Voting Rights: As a shareholder, you will be a participant in the running of a company through your Voter’s Rights. Voting rights give you the power to decide on future company actions at the company Annual General Meeting (AGM).
Income Return: If market conditions are favorable, some companies pay out dividends which can make the investor money even if the share price does not rise.
Form of Savings: Some shareholders commit a part of their monthly salary or earnings to buying shares. Share prices can increase by any margin unlike fixed deposits which have a fixed interest rate.
Investments are Liquid: Shares and Bonds can be bought and sold anytime the market is open for trading.
Offer protection against Inflation especially when stock prices appreciate at rates greater than inflation.
Accessibility: There are many stocks and bonds available in the market today.
Safe Investment: A principle amount is returned to the investor after maturity.
Limited Liability: One of the great advantages of buying stocks is limited liability. Even though you own part of the company, you are not held personally liable if the company goes bankrupt and has to pay debts. The Capital Markets Authority (stock market regulator) monitors the market to ensure the safety of shareholders’ investments.
Enhances wealth through Capital Appreciation. You get to increase your wealth and worth as the price of your shares rise over time. E.g. you may buy shares 100,000shares in a particular company at 100ugx each. If, after some time, each share increases to 300ugx and you sell, you will have made a gain of 200ugx per share. In the year 2000, BATU sold shares at 1000ugx each. If you bought 1000shares then, today BATU share price is 30,000ugx. Your net worth today would be 30,000,000ugx.
Collateral Security for getting loans: Shares can be used as collateral for securing loans.
Gains through Bonus and Rights Issues. A bonus issue is when a public listed company gives free shares to its existing shareholders. A rights issue is when a public listed company gives its existing shareholders the right to buy more shares at a reduced (discount) price compared to the prevailing market price. In both cases, the shareholders can sell their newly acquired shares at the prevailing market price and make a profit but one has to be a shareholder already to qualify for bonus shares or rights.
What are the risks you may face?
Unfavorable changes. Share prices vary widely day to day. This may be caused by changes in the industry, economically or politically driven. This can affect a company’ financial performance.